The FTSE 100 slumped on Thursday after new data showed UK Government borrowing surged higher than expected last month.
London’s blue-chip index ended the day down 47.20 points to finish the day at 8,739.26, a 0.54% fall.
Earlier in the day, official figures showed that public sector net borrowing in the UK soared above expectations to £20.2 billion, leading economists to predict that tax increases “feel inevitable” later this year.
The state borrowing figure reflects the difference between Government spending and its income, largely through tax receipts.
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “April’s public finances figures showed that despite the boost from the rise in employers’ national insurance contributions, the fiscal year got off to a poor start.
“With the PM (Prime Minister) announcing a partial U-turn on the cut to winter fuel payments, the dilemma faced by the Chancellor over how to deal with increased spending pressures in an environment of low economic growth and high interest rates hasn’t gone away.
“With the markets seemingly uneasy about more public borrowing, further tax rises are starting to feel inevitable.”
In Europe, Germany’s Dax fell 0.47% and France’s Cac 40 fell 0.58%.
On Wall Street, the S&P 500 was up 0.15% as UK markets were closing, while the Dow Jones was up 0.12%.
Sterling was up 0.04% against the US dollar at 1.3424, while it was 0.5% up against the euro at 1.1901.
In company news, BT’s share price jumped higher after the telecoms giant said it was on track to deliver its major cost-cutting programme and had made more than £900 million annual savings so far.
The firm said underlying earnings rose 1% to £8.21 billion in the year to the end of March, as cost savings helped offset a 2% fall in revenues.
It is forecasting earnings to be broadly flat over the next financial year, between £8.2 billion and £8.3 billion.
BT shares closed 3.6% higher.
Elsewhere, Bloomsbury shares plummeted by a fifth after the publisher revealed its pre-tax profits slipped by 22% to £32.5 million for the year to the end of February, compared with the previous year.
This was despite revenues rising by 5% year-on-year, as it benefited from expanding its consumer portfolio, and its non-consumer division was boosted by the acquisition of US publisher Rowman & Littlefield.
Bloomsbury shares were down 19.5% at close.
The biggest risers on the FTSE 100 were Hiscox, up 90p to 1284p, BT, up 6.1p to 175.35p, Pershing Square, up 130p to 3,856p, Beazley, up 30.5p to 949.5p, and Marks & Spencer, up 9.3p to 384p.
The biggest fallers on the FTSE 100 were DCC, down 234p to 4,540p, Intermediate Capital, down 86p to 1,982p, Diageo, down 72p to 2,061p, Intertek, down 162p to 4,758p, and Kingfisher, down 9.9p to 300p.
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